What was the original size in pixes and kb? I am thinking that it was smaller than 500 pixes. The Gallery will generate a 500 pixels image from whatever you submit. If you submit something bigger, it will shrink it. If you submit something smaller, it makes it bigger. And it doesn't allow anything bigger than 125 Kb.

Which program are you using? When I use photoshop, I have to resize my layout to 500x500 pixels and then save it as quality level 5. Otherwise is too big.